Monday, March 22, 2010

Presented Without Comment

The question arises: What next? How will the health-care landscape evolve on the heels of Obamacare’s passage? Economic forces provide some clues.

The insurance market will begin to shake up almost immediately, as health-care plans jockey for advantage in advance of the legislation’s full implementation. Insurers will begin pulling out of the individual market, and they will aggressively hike premiums in the small-group market. These consequences are the market’s response to the bill’s new regulations, which effectively prevent insurers from underwriting risk. Insurers are forced to take all comers and, in many cases, they will decide that certain business lines are no longer profitable.

The net result is that two years from now we will likely be looking at an insurance market that has become worse, not better, with premiums higher and more Americans joining the rolls of the uninsured.

Longer term, insurers will begin to consolidate into a handful of very large national carriers backed up by small, state-based plans that try to attract consumers using regional appeal. Health insurance will become a commodity product, one that offers little consumer choice and with benefits that are mostly defined by regulations issued in Washington. Doctors will begin to consolidate their practices into larger groups, or sell their offices to hospitals or large medical chains. That is how physicians will gain leverage on health-insurance plans and take advantage of new reimbursement rules created under the legislation’s Medicare reform.

In the end, there will be only two places for consumers to get health coverage — through a large employer (most likely a union plan) or through the new state-based exchanges. Many large employers with a preponderance of middle-wage employees will move their workers into the exchanges, since the subsidies are richer than the tax exclusion they get through worker-provided coverage. Only employers with sticky union contracts, or those that employ a lot of high-wage workers (e.g., Goldman Sachs) will continue to offer workplace coverage.

Eventually, the federally regulated exchanges will be the only game in town. That was the idea behind Obamacare from the start.